Allocations and valuations

• Average cash balance soars to 5.6% from 4.6% for each of the last three months, marking the biggest jump in cash since the debt ceiling crisis in 2011; allocation to cash jumps 10ppt from last month to net 43% overweight

• Allocation to global equities drops 32ppt to net 21% underweight, the lowest allocation to equities since March 2009 and second biggest one-month drop on record

• Bond allocation soars 12ppt to net 22% underweight, the highest level since September 2011, as dovish central banks, falling inflation expectations, and a risk-off sentiment drive interest rates lower

• This month’s survey finds investors have rotated from cyclical plays (equities, banks, Europe, tech) into defensive ones (staples, utilities, bonds and cash)

• A record net 60% of investors surveyed find the US dollar overvalued, up 16ppt from last month

Macro expectations

• FMS global growth expectations collapsed by a record 46ppt from last month, with net 50% investors surveyed expecting global growth to weaken over the next year; a record high 87% of investors surveyed say the global economy is in the late cycle

• Interest rate expectations have collapsed; in just 8 months, the percentage of investors expecting higher shorter rates has flipped from net 89% to -10%, the lowest level since 2008

• Global profit expectations plummeted 40ppt to net 41% of investors surveyed saying they expect EPS to deteriorate in the next year, the second biggest one-month collapse in the 23-year history of the Fund Manager Survey

• Just 9% of fund managers expect higher global CPI in the next year, down 30ppt from last month and the most bearish inflation outlook since August 2012

Risks

• Concerns about a trade war soar, with 56% of investors surveyed naming it the top tail risk to the market, up 19ppt from last month and topping the list for 14 of the last 16 months; other risks cited include monetary policy impotence (11%), US politics (9%) and a slowdown in China (9%)

• Long US Treasuries (27%) replaces Long US Tech (26%) as the most crowded trade cited by investors for the first time ever, ahead of Long USD (18%) and Short European equities (9%)

“FMS investors have not been this bearish since the Global Financial Crisis, with pessimism driven by trade war and recession concerns” said Michael Hartnett, chief investment strategist. “The tactical ‘pain trade’ is higher yields and higher stocks, particularly if the Fed cuts rates on Wednesday.”